How Strong was the Spanish Economy by 1556?

By 1556, Spain had a very weak economy. Although Spain was considered, and viewed as a rich country, the truth was it was heavily in debt, and was even forced to declare bankruptcy a year later. Some factors for this was the little understanding of how the economy works, Charles’ foreign policy, in which the majority of Spain’s wealth was spent

Spain’s economic standing was weak before Charles’ took the throne in 1516. Although improvements were made to tax collection, under the reign of Queen Isabella, there were no tax reforms. This kept 90% of the taxation on the poorest people of Spain.

When Charles did take the throne, heavy sums of money were borrowed to secure Charles’ Imperial title, and the handling of the Comuneros revolt. Charles’s has been criticised by most historians, such as koenigsberger for failing to provide the right circumstances for growth. As Charles was an inheritor of a lot of dominions (He was the King of Spain, the Holy Roman Emperor, inheritor of the Burgundians provinces etc.) there was a superseding need for money. It was this continual need that prevented him from developing any consistent economic strategies. The discovery of the New World should have given Castile a substantial boost in trade and industry. However, Spain was unable to keep up with the demands of the colonists. This shifted the potential trading from Spain to foreign merchants, and they benefited the most. In Charles’ reign, Spain received over 8 million ducats in gold bullion from the America’s. This however was only a small percentage of Charles’ total income. Money from the colonies should have helped strengthen the Spanish economy, however, due to lack of understanding the way the economy works, they had little effect.

This is a preview of the whole essay

In February 1523, the Council of Finance was established to control revenues and draw up annual budgets, which was a first. Under the leadership of the secretary Francisco de los cobos, the Alcabala (sales tax) rose by 50%. However, the rise was unable to keep up with inflation. The council did help improve parts of the economy, however, the council knew very little of how the economy worked, as did Charles. At one point, Charles agreed to a ban on all exports of cloth except to the Spanish colonies in an effort to keep domestic prices down. This caused such a depression in the textile industry, the ban had to be lifted within five years. Also, had not Charles agreed to convert the Alcabala to a fixed lump sum, then maybe inflation would have slowed down and help keep values in Spain right. However inflation worn the Alcabala’s real value. Annual budgets were inaccurate, debt repayments not being included. Compared with other financial council’s in Europe, it was just as good. One major factor in hindering los Cobos’s ability to fix Spain’s economic problems was Charles’ himself. Charles’ led a greater than extravagant lifestyle, greater than what he could really afford. However it was seen that a King’s court was a reflection of his power, so this was something that Charles' could not skimp out on.

Charles’ inability to persuade the Cortes to allow tax increases created problems for the economy. Those who could pay taxes, the noblemen and clergy for example were exempt from tax. Charles was unable to tax them, which put a lot of pressure on the countries wealth overall. Attempts were made to tax the noblemen in 1538. This failed as the sisa, tax on food, was rejected. It was estimated this tax would have earned 800,000 ducats a year. As 80% of the income was coming from the poorest people of Spain, the overall standard of living decreased, causing greater economic problems.

The population of Castile numbered 5 million, and was increasing rapidly during the 1530s. Spain was significantly rural. As agriculture was the focus of the Spanish economy, the population increased created a boost in agriculture. This was important as the importing of grain drained significant amounts of money from Spain. However, Spain’s agriculture could not support the people of Spain, and so importing of food continued. Mainly because people did not invest in large areas of farming, where irrigations would have helped Spain internally.

The major factor that weakened the Spanish economy to bankruptcy was Charles’ war campaigns. As Charles was ruler of many lands in Europe, it was necessary to keep all under order, and protect them from any threats. To fund his campaigns, he needed money. As he controlled a lot of land, it would be thought he would have enough resources. However, his lands lacked a centralised control. Charles could only depend on the banks in the Netherlands and Italy to acquire loans, and it was easy to take money from Spain, as he was the king of it.

His earlier campaigns were funded by the Netherlands. As his campaigns lengthened, more sources of money were needed. Charles’ turned to Spain as it was now considered safe from a repeat revolt from the Comuneros. His debts in the 1520s and 30s were reasonably small, however his military expenses increased dramatically after 1940. Three major campaigns were launched during the 1540s. Each cost the equivalent of four year’s total income. His campaign with France was very costly and was continued even after Charles abdicated. The bankruptcy of both countries in 1557 forced peace between them. In Germany, Charles negotiated new juros to fund his war against the Lutheran princes in Germany. All future revenue from 1547 to mid 1550 was committed to this campaign. One major battle against France in 1552, the Battle of Metz, cost 2 million ducats. As this was a failure, Charles got little return in money and increased Spain’s debt. In the Mediterranean, Spanish trade was being disrupted by the increasing Turkish influence there. His campaign in Northern Africa to secure trade and links with the Republic of Genoa was a considerable failure. His major campaign against Algiers in 1541 ended in a catastrophic failure. Charles lost over 150 ships and large sums of money.

Charles borrowed heaps more than what his kingdom was earning. During the 1550s, Charles borrowed over 10 million ducats, where Spain’s income was no more than 6 million. As Charles fell further into debt, loans were increasingly difficult to find. However banks which were willing to lend Charles sums of money, did it at interest rates ranging from 30% to 60%.

In conclusion, Spain’s economy wasn’t very strong from the beginning of Charles’ reign, but because of Charles’ policies in Europe, which were necessary for him to remain in power. Spain’s wealth was used, as it was the easiest for Charles to take money from. By 1556, Spain had become in a very weak position, as Charles tremendous amounts of borrowing loans, and committing future revenues bankrupted Spain in no more than a year.